iPhone on Orange + Address Book contacts

I have an iPod touch and sync my Address Book contacts from my MacBook. I'm going to get an iPhone on Orange soon, replacing my Sony Ericsson. My question is this - will I be able to transfer my current Orange SIM card to the iPhone and retain my contacts? And when I sync the iPhone, will it attempt to merge my SIM contacts and my Address Book, or does the iPhone keep SIM contacts and Address Book contacts completely separate? Hope this makes sense!

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